It is no news that the air transport industry has been going through hard times; however, a segment of the market managed to avoid air pockets and to keep healthy: the low fare airlines.

This is how Southwest Airlines, forerunner of low fare airlines became the most profitable company in the world last year, while its colleagues Ryanair, EasyJet, JetBlue, WestJet and Go fly were placed amongst the next 24 in the ranking. What is the secret?

Almost all coincide in employing crews that are not controlled by trade unions. They operate in secondary airports to keep operative costs low; they have eliminated free catering and do not offer services whose administration is complex, such as pre-assigned seats or code share agreements with other airlines.

But the feature that unfailingly unites them is that all the low fare companies operate just one plane model in their fleets, which offers the advantage that they need only train pilots and maintenance mechanics for this machine. Besides, having one plane model only reduces administrative, stock and maintenance costs and the operation can be performed with a minimum amount of technical handbooks, tools and spare parts. On the other hand, the administration of the fleet is hugely simplified.

“What happens if there is a mechanical breakdown?” asks Herb Kelleher, president of the administrative board of Southwest Airlines. “With just the aircraft model in the fleet, we can substitute one plane by another,” he replied.

The first airline company to adopt this piece of tactics was precisely Southwest Airlines, the fourth largest airline in the United States, which has just had its 29^th year of profitable operations.

Having realized how attractive this scheme was, other airlines adopted the model based on the Southwest idea. Ryanair, founded in 1985, became a convert to the new model of economical fares after Michael O’Leary, its general director, paid Southwest Airlines a visit in 1991. Since then, the company has followed an upward course until it finally became the most profitable airline in Europe. At present, it has an annual growth of about 25% and this year it foresees carrying over 12 million passengers.

“We are simply applying in Europe, for the first time and in a very disciplined manner, the model Herb Kelleher, Southwest board president, established in the United States,” stated O’Leary recently during an interview for the Wall Street Journal.

At the beginning of the year, Ryanair signed the purchase of 100 Boeing 737-800 Next Generation planes. The price listed in the order, which includes the optional purchase of another 50 aircraft amounted to 9,100 million dollars and became the largest order ever to be made by a sole airline in the history of the 737 Next Generations.

The argument continues 

Generally speaking, low fare companies choose to fly Boeing 737s, due probably to the long-standing relationship of the already mentioned Southwest with the Seattle builders, from which they bought four 737-200s in 1971, when the airline started operating.

However, John Leahy, commercial manager for Airbus points out that the fact that low fare airlines prefer Boeing aircraft “is nothing but a marketing myth fostered by Boeing itself. In fact, there are historical circumstances that first led companies of this type to fly 737s, but no objective factors today prevent them from obtaining the same benefits by operating the Airbus line of planes”.

It is striking though, that in spite of Leahy’s comments, of the eight low fare companies in the world, six use Boeing planes and the remaining two operate Airbus aircraft.

According to what they say in Seattle, operating costs of the new 737s on a typical route are 4% lower than are those of the closest competitors, the models of the A320 series. This is partly due to the fact that they have a superior structural efficiency.

“The newly designed 737s weigh less than the A320 and thus require less push from the engines to operate,” said Carolyn Corvi, vice-president for Boeing’s 737. “This means that 737s use less fuel, have lower engine maintenance costs and pay lower fees for navigation and landing.”

On the other hand, upkeep costs for the new 737s are as much as 35% lower than those offered by A320 models, according to information forwarded by the Department of transport of the United States through its Form 41, the compulsory method established by the Federal Aviation Administration of that country for airlines to report their maintenance costs.

At Airbus, however, they point out that the A320 family established new patterns of comfort for single aisle planes, “standards that have not been equaled yet by the competition. Seats are wider, more room is offered in the luggage racks and the aisles are also more spacious. Besides, they allow handling of containerized freight,” they added.

“This results in shorter turn-about time (arrival-departure), something that low fare airlines consider of the utmost importance,” they state and then mention the example of JetBlue Airways, a low fare airline whose operating center is in New York and which was ranked amongst the 25 displaying the best results in the world for 2001.

JetBlue was founded very few years ago with solid financial backing (famous businessman George Soros was amongst the investors). The company identified the advantages offered by the A320 family and has placed firm orders for no less than 76 units. Together with its leasing contracts, JetBlue will be operating over 130 A 320 aircraft in the coming years.

In the case of Frontier Airlines, the other US low fare company, it will be operating between 36 and 45 units of the A320 family by early 2005. Frontier is the exception to the rule of the low fares, because it is the only one operating different models: 17 Boeing 737-300s, 7 B737-200s and 6 Airbus 319s.

Of course there is a good reason that explains the variety of Frontier’s machines: the company was founded again in 1993 to begin flying a year later and devote itself to the low fare market. Its first creation goes back to 1 June 1950, when it was organized as just one more commercial airline.

Lately, Frontier has been thinking and acting the low fare company style and has therefore decided to change its fleet of Boeings progressively for Airbus aircraft.

Toby Bright, general sales vice-president for Boeing Commercial Airplanes admits that a fleet exclusively composed of Boeing 737 models is not the road to success for all airlines. “The world is very large, and a great number of airlines carry millions of passengers along innumerable routes around the globe. There will always be room for planes of all sizes, from the giant two-aisle planes to small regional jets,” he said.

Nor is there anybody who dares maintain that either Boeing 737 or Airbus320 is the sole reason for the enormous success of these firms.

Low fare companies: some features

·        In general, they operate new planes to reduce maintenance costs.

·        Preferably, they employ crews that do not belong to trade unions, or sign special agreements with the latter to obtain more flexible terms than those the traditional large companies must respect.

·        They frequently operate in secondary airports to achieve lower operating costs. Small airports are not only cheaper than the main ones, but they are also less crowded and the stopover time is greatly reduced. These shortened times allow the maximum use of the planes, thus writing off the cost of the aircraft in less time.

·        Many of the low fare companies have eliminated free catering, thus saving the cost of the catering itself as well as the cost of complex logistics and administrative processes.

·        Another way of reducing costs is to offer simpler service, eliminating those services that are complicated to manage, such as pre-assigned seats, code-share agreements with other airlines or freight carriers.

·        On the other hand, generally speaking the seats sold are not refundable. That is to say, one the plane has taken off the passenger who has not managed to occupy his seat on the plane loses the right to a change of date or a refund.